WLRHU - WL Ross Holding Corp (Wilbur Ross SPAC)

[lschmidt]

It looks like somebody large needed to get out based on the massive volume that popped up out of nowhere. I couldn't find anything that Wilbur said on CNBC the other day that made me think he wasn't going to get a deal done.

 

Agreed! Today the WLRH has bid 9.98 with size 7 and ask 9.99 with size 42. I  think some equity fund is probably liquidating the WLRH positions because they are getting impatient.

Are you guys buying WLRH or WLRHU?

 

For WLRH, are you sure that you will get back $10 instead of something like $9.6 in Jun 2016, if no deals happen? As I understand, WLRHU was IPO'ed at the price of $10. So if no deals happen, will there by any kind of management fees?

 

Who kinds WLRHW could be the best bet?

 

At prices significantly below $10 for WLRH I would begin seriously considering WLRHU to get access to the warrants. The discount to liquidation would basically compensate me for loss I'd take on the warrants if no deal was done. Given prices right around $10, I'm sticking with WLRH as a cash equivalent with upside optionality and no downside. I really like these idiosyncratic opportunities with the market being where it is and will likely build the position as I move out of other positions of mine. He only has until December to announce something and I know that shipping and Greek banks have fallen quite a bit since his original investments in the sector so I'm sure there are deals to be found even in just those two sectors.

I have also been seriously considering this investment essentially as cash + a free option.

 

However, is it completely reasonable for us to consider it as a cash equivalent? If Ross announces a distressed investment in the next few months, will the market view it favorably or unfavorably (it would be, after all, in an unfavored industry such as the energy sector or a European lender)? The price could go down. Further, the investment may or may not be successful, and the NAV could decrease. The relative merits of cash vs WLRH are not completely clear-cut. What do you think?

 

+1. I don't know enough about investing in SPV to know the typical hit rate. While I think WR is a great investor, I don't view this to be a risk-less investment and would position size accordingly. That said, I certainly think there is some optionality sub-$10.

 

Sure, there is no guarantee in any investment product. You could put 100% of your money in a stable value fund and the commercial paper market could explode and there is a possibility you lose a significant piece of your investment. People still refer to Stable Value funds as being a cash equivalent due to the remoteness of this risk and the magnitude of the likely loss being low. I think it's reasonable to consider WLRH as a cash equivalent for some of your cash holdings up until the point that an acquisition is announced.

 

Let us consider the 4 alternatives for WLRH.

 

1) WLRH bids for no company and the money returned at a known, calculable amount of around $10/share.

2) WLRH bids for a company that is publicly traded and unpopular. WLRH is unlikely to fall simply due to the arbitrage opportunity (short underlying and buy WLRH). It will continue to trade at NAV or at a premium to NAV.

3) WLRH bids for a company that is privately owned/publicly traded and popular. WLRH is likely to trade at a slight premium to NAV simply for getting access to a skilled manager and because a popular company wouldn't engender such a discount.

4) WLRH bids for a company that is privately owned and unpopular. This scenario could end up in a stock at a discount to NAV; however, you'd have to be banking on investors overlooking the benefits of having WLR as a manager AND the idiosyncratic returns one could expect from owning an individual entity that is no longer public outside of your vehicle AND hate it so much to warrant a discount to NAV.

 

Sure there is the possibility that it trades below your cost - but the likelihood is low and the magnitude of loss is likely small.

 

I'm just playing Devil's Advocate here, as it's an interesting thought exercise into the nature of "cash equivalence". Forgive me if I'm being irritating in belaboring what may seem like a simple point. Let's model this as a "stable value fund" that may convert into a closed end fund or holding company at any time and without warning - and about which we're unable to do a risk assessment in advance (though with a very competent manager). Does it still feel cash equivalent if modeled this way?

[usdtor05]

if he does a deal that you do not like you can always hold it and sell it back for $10 towards the deal close. its opportunity cost sure but not the end of the world.

[muscleman]

if he does a deal that you do not like you can always hold it and sell it back for $10 towards the deal close. its opportunity cost sure but not the end of the world.

 

Are you guys sure it is $10, not something less? I read the S1 and it says after underwriting fees they will receive $9.45 per share. So how will they give back $10 when they only received $9.45? Am I missing something?

[muscleman]

I am buying the WLRHU because the filings say I can always request it to be splitted into WLRH and WLRHW. I am going to make that request.

Then I will think about whether I should keep or sell the warrants. I am more inclined to keep it.

WLRHU is selling at 10.55 and then you can split it into WLRH and WLRHW, which are worth 10.00 and 0.68 separately. Then you can sell the warrants if you don't like them.

[usdtor05]

wilbur basically paid the underwriting fees with his purchase and the second half of them were deferred until a deal is done.

[muscleman]

wilbur basically paid the underwriting fees with his purchase and the second half of them were deferred until a deal is done.

 

Got it! I see he made a $10 M purchase of 20 M warrants at $0.5 each.

With the current WRLHU price, I could essentially buy a warrant and a WRLH each at $0.5 and $10. I won't mind losing 0.5% of my entire capital on the warrants, if the deal is not done.

[TwoCitiesCapital]

wilbur basically paid the underwriting fees with his purchase and the second half of them were deferred until a deal is done.

 

Got it! I see he made a $10 M purchase of 20 M warrants at $0.5 each.

With the current WRLHU price, I could essentially buy a warrant and a WRLH each at $0.5 and $10. I won't mind losing 0.5% of my entire capital on the warrants, if the deal is not done.

 

It's 5% and not .5%.

[muscleman]

wilbur basically paid the underwriting fees with his purchase and the second half of them were deferred until a deal is done.

 

Got it! I see he made a $10 M purchase of 20 M warrants at $0.5 each.

With the current WRLHU price, I could essentially buy a warrant and a WRLH each at $0.5 and $10. I won't mind losing 0.5% of my entire capital on the warrants, if the deal is not done.

 

It's 5% and not .5%.

 

I am not putting 100% of my portfolio into WLRHU. I am planning to put 5-7% into it, so if I lose the entire value of my warrants, I lose 0.5% of my entire portfolio.

 

Regardless, buying WLRHU, asking for a split and selling the warrant gives you a lower cost basis than buying WLRH outright. Therefore I don't see the point of buying WLRH outright unless you have liquidity issues as the liquidity is pretty low for WLRHU.

[gr33ngi4nt]

http://www.thestreet.com/video/13127649/wilbur-ross-says-us-valuations-are-stretched-eyeing-ep-company-debt.html

 

Interesting sectors he mentioned: small E&P companies, marine transport (crude oil tankers, product tankers).

 

WLRH and warrants have had a really nice run. Curious to know what people are doing with their stakes? My gut says I should trim a bit of my position, but clearly we are all in this name for WR to buy something...

[TwoCitiesCapital]

http://www.thestreet.com/video/13127649/wilbur-ross-says-us-valuations-are-stretched-eyeing-ep-company-debt.html

 

Interesting sectors he mentioned: small E&P companies, marine transport (crude oil tankers, product tankers).

 

WLRH and warrants have had a really nice run. Curious to know what people are doing with their stakes? My gut says I should trim a bit of my position, but clearly we are all in this name for WR to buy something...

 

I sold, but I've always used this as a more speculative cash equivalent. I basically buy the shares (without the warrants) at sub-$10 with excess cash I'm holding and sell when the premium gets to 3-5%. I look at is a very limited downside trade that allows me to get a 3-5% "yield" on a portion of my cash while still allowing for upside optionality in the event he announces a deal before year end.

[muscleman]

http://www.thestreet.com/video/13127649/wilbur-ross-says-us-valuations-are-stretched-eyeing-ep-company-debt.html

 

Interesting sectors he mentioned: small E&P companies, marine transport (crude oil tankers, product tankers).

 

WLRH and warrants have had a really nice run. Curious to know what people are doing with their stakes? My gut says I should trim a bit of my position, but clearly we are all in this name for WR to buy something...

 

I am not cutting back. The big money is on the table when he announces the deal. If that doesn't happen, I would lose 5% of the money I put into this security, which is acceptable loss to me.

[Guest notorious546]

http://www.valuewalk.com/2015/06/wilbur-ross-board-of-directors/?utm_source=mailchimp&utm_medium=email&utm_campaign=EMAIL_DAILY&utm_content=quick_link

 

[ratiman]

This is getting interesting. Here is what I think is happening. WLRHU is trading at $10.20, just 20c over the $10 cash value. WLRH has to make a deal by beginning of June, so it really has to announce a deal in the next six weeks, give or take. But many of the holders are eoy tax loss selling. The buyers don't want the warrants, they want the shares. Buying the shares isn't riskless but it's close. If the deal is good, profit. If the deal isn't good, veto and get back $10. The warrants on the other hand could turn out to be a zero. So investors are splitting the WLRHW from the WLRHU shares and selling them separately (or buying WLRHU and selling the warrant) because the buyers just want WLRH. That's why IMO WLRHW (the warrants) are a good buy here.

[ratiman]

I don't know what WLRH is going to buy (hard to believe it won't announce something) but I would suggest coal or natgas. Right now is a great time to be a buyer sitting on a lot of cash.

[TwoCitiesCapital]

I don't know what WLRH is going to buy (hard to believe it won't announce something) but I would suggest coal or natgas. Right now is a great time to be a buyer sitting on a lot of cash.

 

I don't know if it's that hard to believe. Worst case scenario is that WL Ross brings another vehicle next year, right? I mean, it's certainly within the realm of reasonable possibilities that he hasn't found anything that he'd be willing to sink the whole $600M into, and the main purpose of these vehicles is to buy control of an operating company. If you wanted minority stakes, you'd just do a closed-end fund.

[ratiman]

You're saying the sponsor doesn't propose a deal? The investors may want their money back, regardless of the deal. Investors may figure that there are better opportunities out there than the proposed deal. But the sponsor has every incentive to propose a deal. I could be wrong, but the whole point is to collect fees. Raising another $700M in this environment isn't that easy.

[ratiman]

Value of the warrants should be about $1 (5 years to expiration and $11.50 strike divided by 2) so at 30c or less the warrants are pricing in 70% chance of no deal. Even if a bad deal is rammed through, the warrants still have some value.

[TwoCitiesCapital]

Value of the warrants should be about $1 (5 years to expiration and $11.50 strike divided by 2) so at 30c or less the warrants are pricing in 70% chance of no deal. Even if a bad deal is rammed through, the warrants still have some value.

 

The warrants only have 5 years if a deal is announced. Otherwise, their life is measured in weeks.

[ratiman]

20M of the warrants are owned by the sponsor. The bankers cash in their $18M fee only in case there is a deal. I don't think the bankers would take that risk unless there was a very high likelihood of a deal. The sponsor loses big-time if there is no deal, the bankers get zilch. I think the problem here is that there are 40M warrants trading (60M altogether), which is a lot.

 

BTW, do you know if WLRH can buy assets of a larger company? Or does it have to buy an actual company?

[TwoCitiesCapital]

20M of the warrants are owned by the sponsor. The bankers cash in their $18M fee only in case there is a deal. I don't think the bankers would take that risk unless there was a very high likelihood of a deal. The sponsor loses big-time if there is no deal, the bankers get zilch. I think the problem here is that there are 40M warrants trading (60M altogether), which is a lot.

 

BTW, do you know if WLRH can buy assets of a larger company? Or does it have to buy an actual company?

 

The bankers took the warrants hoping to get paid on it. The whole purpose of a SPAC is to do acquisitions, so they were hoping a deal would get done. They have no say if a deal gets done or not so their incentives don't really matter here.

[ratiman]

Bankers didn't even get warrants. They got an IOU predicated on a deal.

[usdtor05]

20M of the warrants are owned by the sponsor. The bankers cash in their $18M fee only in case there is a deal. I don't think the bankers would take that risk unless there was a very high likelihood of a deal. The sponsor loses big-time if there is no deal, the bankers get zilch. I think the problem here is that there are 40M warrants trading (60M altogether), which is a lot.

 

BTW, do you know if WLRH can buy assets of a larger company? Or does it have to buy an actual company?

 

He can buy whatever he wants frankly and he put a fair amount of money into the warrants to pay the first half of the fees. Very high likelihood he does something intelligent.

[TwoCitiesCapital]

Shares are below $10.00 again for those who want the arbitrage as an alternative to cash. I'm hoping it gets a little wider before jumping on it myself, but others might find the 2% annualized return for a cash equivalent attractive.

[Guest neiljgsingh]

Just initiated today. Was thinking about the warrants but opted for the common. He's clearly expressed his view that he sees value even in these markets, so let's hope he has the conviction to act now.

[ratiman]

This is just a wild guess, but WLRH could be interested in Samson energy. The restructuring is reported to include a $400-$500M equity portion, rougly what WLRH is looking to spend. Samson is a KKR investment from 2011. That would leave the New Samson with $1B of debt, $400-$500M of equity and $200-$300M of cash.